New foreigners’ tax stifles tourism growth

The projected 4,7% tourism growth in 2015 could be affected by a new value added tax (VAT) on foreign tourists introduced by government two months ago.

Fidelity Mhlanga

The move to impose a 15% tax on hotel accommodation for foreign tourists shows high levels of desperation at a time the cash-strapped government is struggling to pay civil servants salaries.

Analysts say the tax will hit profits in the recovering tourism sector as it could make Zimbabwe one of the most expensive destinations in Africa.

The tax, introduced on short notice in January, has prompted cancellations by foreign tourists, some of whom had made bookings well in advance.

The tourism industry which lost US$6 million in potential revenues in the last quarter of 2014 due to Ebola scare, registered 4% tourist arrival growth during the nine months to September 30, 2014.

Economist John Robertson said the increase in tax and the strengthening of the US dollar will work against the country’s tourism growth.

“Due to the weakening South African rand, foreign tourists from South Africa will spend in Zimbabwe. The Japanese will have to spend more because their yen is weakening .They are discouraged already. This will make the country very uncompetitive. Comparing the cost in Zimbabwe and elsewhere, we are now the highest in the region,” he said.

Robertson said government’s move on value added tax was an act of short-sightedness and will not benefit the national fiscus in the long run.

Government says tourism should benefit from the implementation of the tourism policy launched in July 2014 to promote both international and domestic tourism in the country. The policy spells out the tourism development, marketing and promotion strategies.

The Uni-visa project between Zimbabwe and Zambia, launched last year, was a development meant to increase tourist arrivals in the two countries, arising from the ease of the visa application system.

With the government having set the tone to boost tourism, economist Kipson Gundani said the tax will reduce the number of tourists in the country.

“It depends on other regional charges but what is likely to happen is the increase in costs. It is likely going to discourage tourism inflows in the country,” he said.

A recent report by the Zimbabwe Tourism Authority (ZTA) shows that arrivals into Zimbabwe grew by 4% to 1 354 132 during the nine months to September 30, 2014, from 1 306 302 the prior year.

Tourist figures recorded at various ports of entry are flawed and misrepresenting actual numbers of tourists visiting the country, players say.

However, Treasury last year said the Tourism Satellite Account project, which seeks to improve collection and reporting of tourism statistics, has already secured funding from the African Development Bank under the Youth and Tourism Enhancement Project.

For the hotel business, the average room occupancy is expected to rise to 54% in 2015 from 53% in 2014.Consequently, bed occupancy is also expected to increase to 38,5% in 2015, from 38% in 2014.

“The government can gain revenue through VAT but could gain more dues through an increase in tourists coming in the country. It is a bad idea. In order to raise more money it will cost us, as visits particularly to Victoria Falls will be less,” he said.

Robertson said VAT should rather be refunded to visitors as is the case in South Africa.

The tourism sector spent just under US$80 million in 2013 in preparation for the United Nations World Tourism Organisation general assembly which played a significantly role in putting the nation on the international limelight.

The increase in tax comes at a time when ZTA is set to host the annual tourism fair Sanganai/Hlanganani which attracts regional and international buyers in June after it was shifted from October.

Head of research for Econometer Global Capital Takunda Mugaga said the imposed levy won’t impede the movement of tourists to Zimbabwe.

“We cannot say 15% can affect tourists. It’s not an issue. Tourism is an ostentatious product. It’s good that with its cost being increased its demand can also increase. The 15% tax cannot deter core tourists who want to come in the country. Tourism is elastic and does not respond to prices, but to perception. What can create a problem is a megaphone announcement on the increase on tax,” Mugaga said.

Robertson said reports of abductions were painting a bad picture of the country.

“It is bad for one who has never been in the country who will be affected by this news fearing on their safety during their planned holidays,”he said.

This year the sector is projected to grow by 4,7 % in 2015, compared to 3,9% in 2014. This translates into tourist arrivals of about 2,1 million in 2015 from 2 million in 2014.

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2 thoughts on “New foreigners’ tax stifles tourism growth”

For a tourist for example to tour Victoria Falls and Hwange Safari, one can just book in Livingstone, drive into Zimbabwe and see the falls, drive another 150 to see elephants in Hwange and then drive back to Zambia full stop.